The yen settled at its weakest level against the dollar since early November after posting its biggest gain against the yen since late July. In response, retail traders increased downside risk on the exchange rate. This can be seen by looking at IG Client Sentiment (IGCS), which often acts as a contrarian indicator. With this in mind, is USD/JPY headed higher next?
USD/JPY Sentiment Outlook – Bullish
The IGCS indicator shows that only about 20% of retail traders are net long USD/JPY. With the overwhelming majority favoring the downside, this offers a bearish outlook for the broader outlook. Meanwhile, downside bets increased by 3.72% and 7.4% compared to yesterday and last week, respectively. With this in mind, the overall positioning and recent changes have resulted in
USD/JPY settled above 146.56, a key resistance level established throughout August. The breakout opens the door for a resumption of the broader uptrend from earlier this year. Immediate resistance here is the 61.8% Fibonacci extension at 148.27. A breach of this would expose last year’s peak of 151.94.
Remember, a negative RSI divergence is brewing. While the price has made higher highs, the momentum indicator has not. Sometimes this may precede a turn lower. Such an outcome puts focus on the 20-day moving average, which could act as support, maintaining upside technical focus. Otherwise, further declines will focus on support levels that have risen since March.